Budget 2021- key changes

Ever since the first lockdown in March 2020 the government has spent eye watering amounts of public money to combat the impact of COVID-19. As a result, there had been much anxious speculation before Rishi Sunak delivered his Budget 2021. 

As far as Budget 2021 is concerned, it appears to be a case of spend now and tax later.  It has been estimated that the government's total spending is set to reach £407 billion by the end of 2022. 

Unfortunately, as we have been told previously, there is no magic money tree. Therefore Budget 2021 gave a sneak preview of how the government envisages replenishing it's much depleted coffers, post COVID-19. 

2021 Budget

As with previous posts, we'll eschew the usual blanket coverage in favour of a more targeted approach. In other words, those changes that are potentially likely to affect you and your business. 

Budget 2021: COVID-19 measures 

Given the past year or so, it seems appropriate that we start with the latest COVID-19 measures first.

Coronavirus Job Retention Scheme

Rather surprisingly the Chancellor announced an extension of the Coronavirus Job Retention Scheme until 30 September 2021. Our concern is that the government is simply kicking the proverbial can down the road. This measure could prove highly problematic if the economy doesn't perform as anticipated. We're also hoping that this extension doesn't imply a prolonged continuation of lockdown restrictions (and over-zealous policing!). 

The scheme will continue in it's current form until the end of June 2021 where employees currently receive 80% of their normal salary for hours not worked. 

From 1 July 2021 employers will be asked to contribute towards the cost of unworked hours. The contributions will be 10% in July (up to £312.50), 20% in August and September 2021 (up to £625). It will finally cease on 30 September 2021. 

Self Employed Income Support Scheme

A fourth grant will be paid based on 80% of three month's average trading profits. This will be capped at a maximum of £7,500. It will be paid in respect of February, March and April 2021

However, in order to qualify you must have submitted your 2020 tax return by 2nd March 2021. The qualifying conditions are the same as for the third grant. Any claims can be made from late April 2021 until 31 May 2021.

A fifth grant is then going to be made available over the summer period covering May to September 2021.

The value of any grant received will be based on a turnover test in the tax year to 5 April 2021. If your turnover decreased by 30% or more you'll receive the full grant. This worth 80% of three month's average trading profits capped at £7,500.

If your turnover has decreased by less than 30% you'll receive a 30% grant capped at £2,850.

Claims can be made from late July 2021 and any grants received on or after 6 April 2021 will be taxed in the year of receipt. The exception being a payment made to a partner which is distributed among the partnership.

Other COVID-19 support measures

The recovery loan scheme will be available for businesses from 6 April 2021. It will enable businesses to access loans between £25,000 and £10 million with a guarantee of 80%. You will be eligible regardless of whether you have already received support under existing COVID-19 loan schemes.

Restart Grants will be made available in England and will be up to £6,000 per premises for non-essential retail businesses. They will be up to £18,000 per premises for hospitality, accommodation, leisure, personal care and gym businesses.

Additionally a further £425 million of discretionary business grant funding will be available from public authorities in England.

Budget 2021: Reporting rules for digital platforms

The measure appears to introduce a further clamp down on reporting requirements for online marketplaces. It will be of particular interest if you run an e-commerce business. These new regulations will require certain UK digital platforms to report information to HMRC about the income of sellers of services on their platform.

HMRC will then exchange the information with other participating tax authorities for the jurisdictions where the sellers are tax resident. 

HMRC already has the power to access information from UK-based platforms on the income of sellers on the platform. However, these new rules will enable HMRC to exchange information with other tax authorities to access data from platforms based outside of the UK quickly and efficiently. If you run an e-commerce business it's now more important than ever to be compliant with your taxes from day one.

Budget 2021: IR35 and the private sector

We've posted about this topic previously here and Budget 2021 has confirmed that these changes will now be implemented from 6 April 2021. So this should not come as a surprise to many contractors currently working off payroll.

We would just reiterate, the underlying principles of IR35 will remain unchanged. What is changing from April 2021 is who is responsible for determining whether an engagement is inside or outside of IR35. 

Therefore, if you are currently working in a role that is deemed to be outside of the IR35 legislation this should continue to be the case after 6 April 2021.

Budget 2021: Corporation tax changes

Corporation tax rates

It was predicted by many that the government would increase the rate of corporation tax in order to counteract the effect of increased public borrowing.

Fortunately for the next two financial years, the Corporation Tax rate will remain at 19%. This will be known as the small profits rate. 

However, from 1 April 2023 the main rate of Corporation Tax will increase to 25%. It is anticipated that this will effect only 10% of companies where their chargeable profits are over £250,000.  

Those companies with chargeable profits of between £50,001 and £250,000 will pay tax at 25%. However they will have the benefit of marginal relief as was the case previously. 

The Corporation Tax rate of 19% will not apply to close-investment companies. Additionally, limited company owners will need to be aware that the thresholds above for marginal relief will be apportioned by the number of associated companies and for short accounting periods.

Trading Losses

In Budget 2021 a new three year carry-back for company trading losses was announced.

After an existing loss carry back claim to the prior accounting period, losses arising in accounting periods ending between 1 April 2020 and 31 March 2022 can be carried back further.

Losses of up to £2 million  can be carried back against profits of the same trade for two further accounting periods. This limit applies to each of the two financial years between 1 April 2020 and 31 March 2022.

There is no pro-rata reduction of the £2 million cap for short accounting periods and relief is claimed against profits of later accounting periods first.

HMRC have also provided further details regarding groups of companies and worked examples which can be seen here

Budget 2021: Super-deductions & FYA's

In a move clearly designed to stimulate large infrastructure expenditure a new capital allowance was introduced 

Any expenditure incurred by companies on new, unused, qualifying plant and machinery between 1 April 2021 and 31 March 2023 will benefit from a more generous first-year capital allowances. The 'Super -deductions' basically fall into two categories:

  • Any qualifying expenditure on main rate assets (usually 18% writing down allowance) assets will receive a 130% first year allowance. This has been termed the 'Super deduction'.
  • Any qualifying expenditure on special rate assets (usually 6% writing down allowance) assets will receive a 130% first year allowance. This has been termed the 'SR allowance'.

There are a number of conditions attached to claiming the expenditure, particularly that incurred under a hire purchase contract or similar contract. Some items don't qualify e.g. expenditure on cars. Further details can be found here

Additionally, the temporary Annual Investment Allowance of £1,000,000 will be extended by one year and will apply until 31 December 2021.

Budget 2021: Making Tax Digital

Some time ago we posted about HMRC entering into the 21st Century and introducing Making VAT Digital. Budget 2021 has now published an updated timetable for implementation.

  • From 1 April 2022 Making VAT Digital will apply to all VAT registered businesses. In other words not just those over the mandatory threshold
  • From April 2023: self-employed businesses and landlords with business turnover above £10,000 report under Making Tax Digital
  • From April 2024: companies can start using a Making Tax Digital for Corporation Tax pilot scheme
  • From April 2026: companies join Making Tax Digital for Corporation Tax.

If you haven't yet contemplated investing in a cloud based software like FreeAgent or Xero, maybe it's now time to start thinking about it

Budget 2021: R&D relief

We previously discussed the proposed cap on R&D tax credits for Small to Medium Sized Enterprises. This has now been confirmed and the maximum amount a company can claim will be £20,000 plus three times the company's total PAYE/NICs.

The R&D tax reliefs, as they currently stand, will also be subject to consultation. The government wants to keep the UK as a competitive location for research companies and review whether the reliefs are still effective.

Budget 2021: Other key changes

Other notable changes introduced in Budget 2021 included the following:

  • For the tax year 2021/2022 the personal allowance for an individual will be £12,570 and the basic rate band remains at £37,500. The additional higher rate of 45% will continue to apply on income over £150,000.  The savings rate will remain at £5,000. There will be a freeze on the personal allowance and higher rate threshold at 2021-22 levels up to and including 2025-2026
  • The reduced VAT rate for hospitality, accommodation and attractions will extend the 5% rate to 30 September 2021 then 12.5% to 31 March 2022.
  • From 6 April 2021 the capital gains annual exemption will remain at £12,300 for individuals and personal representatives and £6,150 for trustees of a settlement respectively. The much feared alignment of capital gains tax rates with income tax rates did not materialise - at least for the time being. 
  • A proposed revision to the current tax penalty regime designed to be fairer and target serial offenders

For more useful information, check out our Ebooks here.

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